Ashford Trust seeks right transaction opportunities
Ashford Trust seeks right transaction opportunities
05 MARCH 2018 9:46 AM

While it has sold off some of its hotels in targeted dispositions, Ashford Hospitality Trust is watching for the right deal conditions to add to its portfolio.

DALLAS—Executives at Ashford Hospitality Trust reported strong performance in the fourth quarter during the company’s recent earnings call, citing “significant improvement” over the results of the third quarter.

Fourth-quarter comparable revenue per available room grew 3.9% year over year, President and CEO Douglas Kessler said, but when removing hotels under renovation in the quarter, RevPAR grew 5.8%. The results are a reflection of a more diversified, high-quality lodging portfolio and the efforts of the company’s management team, he said.

The company will continue to own and acquire predominantly upper-upscale, full-service hotels at a RevPAR generally less than two times the national average, Kessler said, but it is not chasing the highest RevPAR hotels because there are trade-offs in RevPAR and yield.

“We see a wide array of transaction opportunities for these types of hotels at more attractive pricing, oftentimes with the ability to add value or convert to franchised hotels,” he said.

Although it did not acquire any new properties, Ashford Trust completed several capital market transactions that will lead to savings, Kessler said. The company refinanced the Hilton Boston Back Bay Hotel along with a 17-hotel portfolio and an eight-hotel portfolio for a combined total of $919 million.

“This is significant, and we hope to see more refinancing opportunities ahead in 2018,” he said.

As of press time, Ashford Trust’s stock was trading at $6.03, down 10.4% year to date. The Baird/STR Hotel Stock Index was down 1.9% for the same period.

Strategic transactions
It was frustrating to sit on its excess cash in 2017 instead of putting it to work to grow earnings before interest, taxes, depreciation and amortization, Kessler said, but the company didn’t see a good selection of hotels available and those that were up for sale were overpriced.

“We do not grow for growth's sake,” he said. “Instead, we seek to achieve growth that is accretive to shareholder returns.”

The 2018 hotel transaction environment should still remain a competitively bid market, Kessler said, so Ashford Trust will continue to be selective and disciplined on deals as it balances expected returns, underwritten growth and the cost of capital.

“At the same time as part of our strategy, we will continue to be financially calibrated in our decision to sell hotels,” Kessler said. “Factors that go into our decision are items such as RevPAR and growth, future CapEx spend and ROI, debt metrics and loan release provisions, net proceeds, redeployment opportunities and the overall impact on EBITDA.”

In the past, Ashford Trust has stated its strategic focus was predominantly on upper-upscale, full-service hotels, Kessler said, but that doesn’t mean the company will pursue this strategy for the sake of strategy alone.

“Although recently in the past quarter, the full-service hotel RevPAR growth was stronger than select-service, but that hasn't necessarily always been the case through 2017,” he said. “And so we benefit from having these assets in the portfolio. We're not necessarily, in our opinion, losing value by having the assets.”

Ashford Trust has about 60 select-service hotels in its portfolio, he said, and it’s constantly evaluating CapEX as well as the expected RevPAR growth of these assets. Some of these assets are in debt pools that are at times difficult to release assets, he said, but the company’s financial team is doing a great job to refinance many of its existing loan pools to provide added flexibility.

“Obviously, the lower the RevPAR, the higher the CapEx spend to the extent that we can achieve an appropriate valuation, the more motivated we might be from a pecking-order standpoint to sell that asset over, let's say, one of our more urban select-service hotels like in Boston or in Austin, as another example,” he said.

As of 31 December, its portfolio consisted of 120 properties, 21 of which were under renovation, according to an earnings news release.

Ashford Trust is continuously identifying opportunities to create value in its portfolio, said Jeremy Welter, EVP of asset management, and the company completed a number of CapEx initiatives in 2017 that should bear fruit in 2018. It completed the renovation of guestrooms and/or public spaces at 14 hotels, he said, with another seven full-service hotels currently undergoing extensive renovations.

“Currently, one of our largest projects is the guestrooms, suites and concierge lounge renovation taking place at the Ritz-Carlton, Atlanta,” he said. “We expect this renovation to be completed early in fourth quarter 2018. We look forward to completed work at these properties and the positive impact we expect this will have on the portfolio going forward.”

In 2018, Ashford Trust will continue to invest in its portfolio to maintain competitiveness, Welter said, budgeting $165 million to $185 million in CapEx for the year, lower than the $222 million spent in 2017. Most of the CapEx will go toward guestroom renovations at the Hyatt Regency Coral Gables, the Westin Princeton at Forrestal Village, the Ritz-Carlton, Atlanta and the Hotel Indigo Atlanta, he said. The Renaissance Nashville Hotel will see a comprehensive lobby and restaurant repositioning as well.

“In addition to major renovations and repositionings, we also focus on finding opportunities and projects where smaller expenditures can quickly add value to our portfolio and have a significant effect on growing hotel EBITDA,” he said, citing the company’s efforts to reduce energy consumption and the portfolio’s carbon footprint.

Most of the CapEx will be performed during the first half of the year, he said, primarily in the first quarter. The severity of 2018’s CapEx should be less invasive compared to 2017, he added.

Brand property-improvement-plan requirements are going to be “a little more onerous across the board,” Welter said, but Ashford Trust is active in extending franchise agreements, which allows it to negotiate the PIPs “pretty heavily.”

Marriott International is taking advantage of its larger platform, he said, especially with some of its Starwood Hotels & Resorts Worldwide brands that have been historically undercapitalized. While he would expect them to be more difficult going forward, there hasn’t been much of an issue because Ashford Trust has maintained those properties well.

“I would say that what we're seeing is probably more requirements on select service, more invasive requirements,” he said. “There's some select-service hotels that you're seeing in PIPs now where they're full shower conversions. … I would never have guessed that a few years ago, as well as complete re-enhancements of the facade just to modernize the building.”

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